Korea Electric Power Corp. (KEPCO) has signed an agreement to buy a U.S. solar power plant from private equity firm Carlyle Group for $35 million, in its second cross-border acquisition financed in part by a fund that it had launched with the National Pension Service.
Under the agreement signed on August 26, KEPCO said that its U.S. subsidiary will take a 51% stake in the power plant in Colorado for $17.48 million. The remaining 49%, worth $17.40 million, will be bought by the Corporate Partnership Fund (COPA fund), formed by both KEPCO and NPS in 2014 to finance joint overseas investments.
The power plant held by Cogentrix Energy, LLC. is one of North American power generation assets that the Carlyle Group’s $1.14 billion infrastructure fund had bought from Goldman Sachs in 2012. The facility is located on 225 acres in the San Luis Valley near Alamosa, Colorado and produces 30 megawatts of solar power.
The deal comes after KEPCO bought a 9% stake in Gemeng International Energy, a power-generating firm in Shanxi, China, from Deutsche Bank in 2014: the 120-billion-won purchase was financed by the COPA fund.
COPA funds are private equity funds formed by NPS and South Korea’s big conglomerates to help overseas M&As. KEPCO has been making full use of the funds to advance into overseas markets, compared with other domestic companies.
The power utility in South Korea set up two COPA funds with the NPS in February 2014, raising a total of 400 billion won ($356 million). The pension scheme made up 87% of the commitment made to the funds. Canada-based Sprott Asset Management and South Korea’s Kiwoom Asset Management are overseeing the COPA funds.
Since 2011, NPS has launched COPA funds worth around 6 trillion won, jointly with 16 South Korean business groups or major companies, including SK Group, CJ Group, LS Group, Nexen Corp., POSCO and KT&G. Those funds are raised in the way of so-called matching: when one party commits money to the fund, the other party – NPS – follows suit.
However, COPA funds have been barely tapped since their inception. Excluding KEPCO, only KT&G, POSCO, GS Engineering & Construction and Pulmuone have used part of the funds to invest in foreign companies. With other sources of cheaper funding available and dwindling cross-border acquisitions involving South Korean firms, the country’s top companies were less inclined to use COPA funds.
“NPS has not set any specific hurdle rate for COPA funds, but the NPS’ benchmark (return) for private equity investments – 5% plus CPI – is regarded as a kind of hurdle,” said a South Korean private equity industry source. “Top South Korean companies, which are able to raise cheaper funding, have no reason to use COPA funds,” he added.
In an effort to increase the use of COPA funds, NPS has altered the management fee-charging basis to the outstanding investment value from the value of commitment. But it failed to boost interest in the funds.
Prior to KEPCO’s acquisition of the U.S. solar power plant, the last deal that tapped into COPA funds was CJ Group’s purchase of a 71.4% stake in Rokin Logistics and Supply Chain Co., Ltd., China’s largest frozen product distributor, for 455 billion won last year. Only 70 billion won emanated from COPA funds for the purchase.
Dongwon Group’s COPA fund was liquidated last March, in accordance with the principle of the funds that they will lapse automatically, if there is no investment involving COPA funds for four years. Other COPA funds launched in 2012 for KT Corp., SK Group and LS Group are expected to be liquidated this year.
By Ik Hwan Kim and Chang Jae Yoo
<Edited by Yeonhee Kim>